Global Commodity Chains and the New Imperialism
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The Jus Semper Global Alliance Living Wages North and South Sustainable Human Development May 2019 ESSAYS ON TRUE DEMOCRACY AND CAPITALISM Global Commodity Chains and the New Imperialism Intan Suwandi, R. Jamil Jonna and John Bellamy Foster Jus Semper’s core work has been from inception assessing the enormous disparities in hourly manufacturing labour costs, for equivalent work, between the metropolises and the emerging economies in the periphery of the global system. We have always performed our work for reasons of equity, using purchasing power parity compensation costs, under the context of equal pay for equal work of equal value We do this to expose the sheer exploitation of labour in peripheral economies for the maximisation of productivity and shareholder value of global corporations. In this way, we have published our annual reports on “Wage rate gaps for selected developed and emerging economies in manufacturing” since 2003, using data dating back to 1975. For this reason, we feel truly encouraged to continue our mission by now publishing a new essay that addresses the same issue of sheer labour exploitation of workers in the global South of the system from the perspective of productivity, using as the main indicator the unit labour costs of a select group of both Northern and Southern economies of the global system, namely Germany, Japan, United States and United Kingdom in the North and China, India, Indonesia, and Mexico in the South. Indeed, as the authors clearly explain and demonstrate in the following pages, the much higher rates of exploitation of workers in the global South has to do not simply with low wages, but also with the fact that the difference in wages between the North and South is greater than the difference in productivity. This paper further enlightens with rather strong evidence, anchored on theoretical and empirical research of commodity- chain analysis, our argument that the main driver of social inequality between North and South is the deliberate system of “Modern Slave Work”; a system imposed in the global South by the elites of both the centre and the periphery of the global capitalist system, to exploit the labour-value commodity chains to perpetuate what could best be described as a new global colonialism or imperialism. TJSGA/TLWNSI Essay/SD (E019) May 2019/Suwandi, Jonna & Bellamy Foster 1 True Democracy and Capitalism Twenty-first-century capitalist production can no longer be understood as a mere aggregation of national economies, to be analysed simply in terms of the gross national products (GDPs) of the separate economies and the trade and capital exchanges occurring between them. Rather, it is increasingly organised in global commodity chains (also known as global supply chains or global value chains), governed by multinational corporations straddling the planet, in which production is fragmented into numerous links, each representing the transfer of economic value. With more than 80 percent of world trade controlled by multinationals, the annual sales of which now equal around half of global GDP, these commodity chains can be seen as fastened at the center of the world economy, connecting production, located primarily in the global South, to final consumption and the financial coffers of monopolistic multinational firms, located primarily in the global North.1 The commodity chain of General Motors includes twenty thousand businesses worldwide, mostly in the form of parts suppliers. No U.S. automobile manufacturer imports less than around 20 percent of its parts from abroad for any of its vehicles, with imported parts sometimes amounting to around 50 percent or more of the assembled vehicle.2 Likewise, Boeing purchases from abroad about a third of the parts it uses for its aircraft.3 Other U.S. companies, such as Nike and Apple, offshore their production to subcontractors, mainly in the periphery, with production carried out according to their exact, digital specifications—a phenomenon known as arm’s length contracting, or what is sometimes referred to as non-equity modes of production. This offshoring of production by today’s multinational corporations in the center of the world economy has led to a vast shift in the predominant location of industrial employment, from the global North up through the 1970s to the global South this century.4 Studies have found that the accelerating pace of offshoring is closely related to foreign direct investment (FDI) in low- wage areas in the periphery, associated with intrafirm trade. In 2013, the global FDI inflows to “developing economies” reached a record high of 52 percent of total FDI, exceeding flows to developed economies for the first time ever, by $142 billion.5 But of equal importance today is arm’s length contracting. The World Bank, using U.S. Census data, indicates that 57 percent of all U.S. trade is arm’s length trade, while a rapidly growing part of this is the lower the per-capita income of a U.S. trading partner, the taking the form of monopolistic arm’s length higher the share of U.S. arm’s length trade, indicating that this contracting, involving specified production is all about low wages. carried out by subcontracting firms (such as the Taiwanese Foxconn operating in China) producing commodities (such as iPhones) for buyer-driven multinational corporations (such as Apple). In general, the lower the per-capita income of a U.S. trading partner, the higher the share of U.S. arm’s length trade, indicating that this is all about low wages.6 Even multinationals with high levels of FDI are heavily involved in arm’s length trade, moving in this way between direct and indirect exploitation. Arm’s length contracts generated about $2 trillion in sales in 2010, much of it in developing countries.7 In 2010–14, the world economy grew at a 4.4 percent rate while arm’s length trading grew at a 6.6 percent rate, far exceeding the former.8 1 World Bank, “Arms-Length Trade,” Global Economic Prospects (2017), 62, http://pubdocs.worldbank.org; The Impactof Global Supply Chains on Employment and Product System, report no. 1, submitted to the ILO Research Department (Paris: Institut de Recherches Économiques et Sociales, 2018), 8, http://ilo.org. 2 American Automobile Labeling Act 2018 (Washington, D.C.: National High-way Traffic Safety Association, 2018), http://nhtsa.gov. 3 Nick Vyas, “Four Compass Points for Global Supply Chain Management,” Supply Chain Management Review 22, no. 5 (2018), 5. 4 John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna, “The Global Reserve Army of Labor and the New Imperialism,” Monthly Review 63, no. 6 (November 2011): 4. 5 United Nations Conference on Trade and Development (UNCTAD), World Investment Report, 2013 (Geneva: United Nations, 2013), xii. 6 World Bank, “Arm’s Length Trade,” 63–64. 7 UNCTAD, World Investment Report, 2011 (Geneva: United Nations, 2011), 132. 8 World Bank, “Arm’s Length Trade,” 62. 2 TJSGA/TLWNSI Essay/SD (E019) May 2019/Suwandi, Jonna & Bellamy Foster Although these phenomena are not entirely new, in the sense that all sorts of historical precedents can be found in the operations of inter-national corporations, the scale and sophistication of commodity chains today represent qualitative changes that are transforming the character of the entire global political economy. This has generated enormous con- fusion in political-economic analyses on both the right and the left. Thus, the shift in industrial employment and the rapid growth of some countries in the periphery, particularly in East Asia, led even as important a Marxist theorist as David Harvey to conclude that the direction of imperialism has somehow reversed, with the West, or the global North, now on the losing end. As he puts it, the historical draining of wealth from East to West for more than two centuries has…been largely reversed over the last thirty years.… I think it is useful to take up Giovanni Arrighi’s preference to abandon the idea of imperialism (along with the rigidities of the core-periphery model of world system theory) in favor of a more fluid understanding of competing and shifting hegemonies within the global state system.9 Yet, such assessments are based on the illusion that twenty-first-century imperialism can be approached, as in earlier periods, mainly on the level of the nation-state without a systematic investigation of the increasing global reach of multinational corporations or the role of the global labour arbitrage, sometimes referred to in business circles as low-cost country sourcing. At issue is the way in which today’s global monopolies in the centre of the world economy have captured value generated by labour in the periphery within a process of unequal exchange, thus getting more labour in exchange for less.10 The result has been to change the global structure of industrial production while maintaining and often intensifying the global structure of exploitation and value transfer. The complexity of the world employment situation generated by global commodity or supply chains is indicated in Table 1, which includes the countries with the largest shares of employment in global commodity chains in 2008 and/or 2013. As Table 1 shows, China and India provide by far the largest share of the total employment engaged in global commodity chains, while, for both countries, the United States is the primary export destination. This creates a situation where production and consumption in the world economy are increasingly severed from each other. Moreover, value added, associated with such commodity chains, as we shall see, is disproportionately attributed to economic activities in the wealthier countries at the centre of the system, although the bulk of the labour occurs in the poorer nations of the periphery or the global South.